Mboweni's budget speech was more solution-oriented than expected

28 February 2019Consultancy.co.za

Despite expectations of populist and pandering budget announcements from the new South African Finance Minister Tito Mboweni, the 2019 budget speech consisted of a number of relevant policy announcements, according to Director of Tax Consutling at Mazars, David French.

Earlier this year, Senior Tax Partner at Mazars Bernard Sacks praised Tito Mboweni as a more pragmatic Finance Minister than those previously in charge of South Africa’s treasury, branding him as the CEO of South Africa. Sacks expressed hopes that Mboweni’s budget announcements would introduce a degree of stability.

However, given that South Africa is due to enter elections in the near future, many commentators were expecting the budget speech for this year to be riddled with populist policies that would garner a favourable public opinion. Mazars analysts argue that his has not been the case.

Having reviewed the budget announcements made by Mboweni, Director of Tax at Mazars David French has illustrated how Mboweni’s speech actually addressed some of the most pertinent concerns currently prevalent in the South African economy, including the future of Eskom, the high levels of debt and, ofcourse, taxes.

Eskom’s reduced capacity and flailing revenues have been a major cause for concern amongst South Africans, to the extent that the President himself has devised plans to rescue the struggling state-owned enterprise. According to French, Mboweni’s stance on this issue was a promising indicator.

“This is the first year in anyone's memory that the minister of finance openly questioned SA's need for SOEs, implying that government is ready to start looking for alternative solutions. It may be pure optimism at this stage, but this seems like a step in the right direction,” he said.

On the debt situation, French said, “The debt-to-GDP ratio is set to grow to 60.2% by 2023/2024 and recede slightly to 60.1% the following year. This is not ideal, but the fact that it is expected to grow only by 4% over the next four years, and then remain there, shows that Treasury aims to stabilise SA's debt. We will have to see if that satisfies the ratings agencies.”

“Is the 2019 Budget good enough to keep rating agencies from downgrading South Africa? At this stage we cannot say for certain but I believe that there is a fair chance that it is,” said French, addressing South Africa’s low rankings on the ease of doing business and other ratings, which has been a barrier to the country’s plans to draw foreign investment.